How to Reconcile Bank Statements: A Step-by-Step Guide
Bank reconciliation finds the discrepancy between your books and your bank — and fixes it before it becomes an audit problem. Here's the exact process.
What is bank reconciliation?
Bank reconciliation is the process of matching the transactions in your accounting records against your bank statement. When your books balance equals your bank balance (after adjusting for timing differences), your records are reconciled. It's one of the most important internal controls a small business can maintain.
Step 1 — Gather your documents
You need two things: your bank statement for the period (downloadable as CSV, OFX, or QFX from your bank portal) and your accounting ledger for the same period. If you're behind, reconcile one month at a time starting from the most recently reconciled period.
Step 2 — Match deposits
Go line by line through your deposits. Every bank credit should have a corresponding transaction in your books. Common mismatches: customer payments recorded in the wrong period, wire transfers with different settlement dates, or ACH deposits your bookkeeper hasn't categorized yet.
Step 3 — Match payments and withdrawals
Match every bank debit to a transaction in your ledger. Watch for: outstanding checks (written but not yet cashed), bank fees not yet recorded, and duplicate transactions from CSV import. Outstanding items belong on the reconciliation worksheet — they're not errors.
Step 4 — Adjust for outstanding items
Outstanding checks reduce your book balance; outstanding deposits increase it. Adjusted bank balance = statement ending balance + deposits in transit − outstanding checks. This should equal your adjusted book balance.
Step 5 — Investigate and correct differences
If the adjusted balances don't match, common causes are: transposition errors (recording $1,540 as $1,450), missing transactions, or incorrectly categorized bank fees. Fix these in your accounting software before locking the period.
Step 6 — Lock the period
Once balanced, lock the reconciled period so nobody can accidentally edit posted transactions. Run your bank reconciliation report and attach it to your month-end close documentation. in Pemabu, locking the period also triggers the retained earnings close entry.
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